ACIT, Ahmednagar V. Smt Veena Gajendra Chaudhary, Ahmednagar

ITA 1530/PUN/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 84937 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 01-08-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Keywords: Gross profit estimation; Business expenditure
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JUDICIAL MEMBER AND SHRI G.S. PANNU, ACCOUNTANT MEMBER ITA NO.1530/PN/2013 (ASSESSMENT YEAR : 2007-08) ASSTT. COMMISSIONER OF INCOME TAX, AHMEDNAGAR CIRCLE, AHMEDNAGAR. . APPELLANT VS. SMT. VEENA GAJENDRA CHAUDHARY, PROP. VAGA CONSTRUCTION, WAKODI PHATA, SOLAPUR ROAD, AHMEDNAGAR. PAN : AFUPC8240F . RESPONDENT DEPARTMENT BY : MR. P. S. NAIK ASSESSEE BY : NONE DATE OF HEARING : 19-08-2014 DATE OF PRONOUNCEMENT : 28-08-2014 ORDER PER G. S. PANNU, AM THE CAPTIONED APPEAL BY THE REVENUE IS DIRECTED AGA INST AN ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-I, PUNE DA TED 29.05.2013 WHICH, IN TURN, HAS ARISEN FROM AN ORDER DATED 23.12.2009 PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME-TAX ACT, 1961 (IN SHORT THE ACT) PERTAINING TO THE ASSESSMENT YEAR 2007-08. 2. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF THE RESPONDENT/ASSESSEE INSPITE OF SERVICE OF NOTICE WH EREAS THE LEARNED DEPARTMENTAL REPRESENTATIVE, SHRI P.S. NAIK APPEARE D ON BEHALF OF THE APPELLANT/REVENUE. IN THE ABSENCE OF ANY APPEARANC E BY THE ASSESSEE IN PERSON OR THROUGH AN AUTHORIZED REPRESENTATIVE INSP ITE OF SERVICE OF NOTICE, FOLLOWING RULE 25 OF THE APPELLATE TRIBUNAL, 1963, WE HAVE PROCEEDED TO DISPOSE OF THE APPEAL EX-PARTE QUA THE RESPONDENT A FTER HEARING THE APPELLANT/REVENUE ON MERITS. ITA NO.1530/PN/2013 A.Y. : 2007-08 3. ALTHOUGH, THE REVENUE HAS RAISED MULTIPLE GROUND S OF APPEAL BUT ESSENTIALLY IT HAS RAISED A SOLITARY GRIEVANCE WHIC H IS REFLECTED BY THE FOLLOWING IMPUGNED GROUND OF APPEAL :- 2. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) GROSSLY ERRED IN RESTRICTING THE ADDITION MADE BY THE ASSES SING OFFICER ON ACCOUNT OF LABOUR CHARGES FROM RS.25 LAKHS TO A MEAGER RS.6,19 ,849/- WITHOUT ASSIGNING ANY VALID REASON FOR SUCH REDUCTION. 4. IN BRIEF, THE RELEVANT FACTS ARE THAT THE RESPON DENT-ASSESSEE IS AN INDIVIDUAL ENGAGED IN THE BUSINESS OF INDUSTRIAL AN D ENGINEERING FABRICATION WORK INVOLVING LABOUR ORIENTED WORK, LIKE ERECTION OF INDUSTRIAL SHEDS, FABRICATION, PAINTING WORK, CLADDING & FLASHING, PO WDER COATING, PLUMBING, ETC.. FOR THE ASSESSMENT YEAR UNDER CONSIDERATION, ASSESS EE FILED A RETURN OF INCOME DECLARING TAXABLE INCOME OF RS.25,55,724/-. THE RETURN OF INCOME FILED WAS SUBJECT TO A SCRUTINY ASSESSMENT U/S 143(3) OF THE ACT WHEREBY THE TOTAL INCOME WAS ASSESSED AT RS.50,55,724/- AFTER MAKING AN ADDITION OF RS.25,00,000/- REPRESENTING AD-HOC DISALLOWANCE OUT OF LABOUR CHARGES. THE ASSESSING OFFICER EXAMINED SOME OTHER ASSESSEES IN HIS JURISDICTION WHO WERE STATED TO BE IN SIMILAR LINE OF BUSINESS AND C OMPARED THE LEVEL OF LABOUR CHARGES INCURRED BY THEM WITH THAT OF THE RESPONDEN T-ASSESSEE BEFORE US. THE ASSESSING OFFICER FOUND THAT THE LABOUR CHARGES CLAIMED BY THE ASSESSEE WERE ABNORMALLY HIGH IN COMPARISON TO OTHER CASES I N SIMILAR LINE OF BUSINESS. ACCORDINGLY, HE MADE AN AD-HOC DISALLOWANCE OF RS.2 5,00,000/- OUT OF THE LABOUR CHARGES. 5. BEFORE THE CIT(A), ASSESSEE MADE VARIED SUBMISSI ONS ASSAILING THE AD- HOC DISALLOWANCE MADE BY THE ASSESSING OFFICER. ON E OF THE ASPECTS RAISED BY THE ASSESSEE WAS THAT THE ASSESSMENT FOR A SUBSE QUENT ASSESSMENT YEAR 2010-11 WAS ALSO FINALIZED BY THE DEPARTMENT U/S 14 3(3) OF THE ACT AND NO OBJECTION WAS RAISED AND NOR ANY ADDITION HAS BEEN MADE OUT OF LABOUR CHARGES IN SUCH ASSESSMENT. IT WAS ALSO POINTED OU T THAT THE ASSESSING ITA NO.1530/PN/2013 A.Y. : 2007-08 OFFICER HAS NOT IDENTIFIED ANY PARTICULAR INSTANCE OF BOGUS PAYMENT ON ACCOUNT OF LABOUR CHARGES. THE ASSESSEE ALSO REFERRED TO T HE NATURE OF HIS BUSINESS WHEREIN LABOUR HIRED IS GENERALLY UNSKILLED OR SEMI -SKILLED TO POINT OUT THAT PERFECTLY MAINTAINED MUSTER ROLLS WAS NOT FEASIBLE. THE CIT(A) DELETED THE ADDITION OF RS.25,00,000/- MADE OUT OF LABOUR CHARG ES BECAUSE ACCORDING TO HER, THE SAME WAS ON MERE SURMISES AND CONJECTURES. HOWEVER, SHE FOUND THAT THERE WAS NO VALID EXPLANATION FURNISHED BY TH E ASSESSEE REGARDING THE LOWER GROSS PROFIT RATE. ACCORDINGLY, SHE FOUND IT FIT TO RETAIN AN ADDITION OF RS.6,19,849/- ON ACCOUNT OF LOW GROSS PROFIT. THE FOLLOWING DISCUSSION IN THE ORDER OF THE CIT(A) IS WORTHY OF NOTICE :- 3.3. I HAVE CONSIDERED THE SUBMISSIONS MADE BY THE APPELLANT AS WELL AS THE CONTENTION OF THE ASSESSING OFFICER AS DISCUSSED IN HER ORDER. THE BASIC OBJECTION RAISED BY THE ASSESSING OFFICER APPEARS TO BE THE CASH PAYMENTS MADE TOWARDS LABOUR CHARGES BY THE APPELLA NT. THE EXPLANATION OF THE APPELLANT IS THAT IT IS A LABOUR INTENSIVE B USINESS WHEREIN THE MAIN COMPONENT OF THE FABRICATION AND ERECTION WORK ACTU ALLY CARRIED OUT BY THE APPELLANT IS FABRICATION, PAINTING, CLADDING, FLASH ING AND PLUMBING ETC. THE WORK IS DONE AND LABOUR IS HIRED AT THE SITES. THE LABOUR HIRED IS GENERALLY UNSKILLED OR SEMI-SKILLED LABOUR WHO WORK ON DAILY WAGES, RATHER THAN ON A PERMANENT BASIS. SINCE THE WORKERS ARE HIRED AS PER REQUIREMENT OF THE PROJECT, THEY ARE PAID IN CASH AT THE LOCATION ITSE LF. THERE IS NO ALTERNATIVE BUT TO PAY THE LABOUR IN CASH. THIS ASPECT HAS ALSO BEEN COMMENTED UPON BY THE STATUTORY AUDITORS IN THE AUDIT REPORT FOR T HE YEAR. IT HAS BEEN CLAIMED THAT THE MUSTER AND PAY SHEET OF ALL THE WO RKERS SHOWING THE NUMBER OF DAYS WORKED, WAGES PER DAY AND OVERTIME, IF ANY, WAS PRODUCED BEFORE THE ASSESSING OFFICER. RELIANCE HAS BEEN PLA CED ON ITAT AHMEDABAD DECISION IN ITO VS PRAGATI FASHIONS REPOR TED IN 12 ITR 444 (AHD.) (TRIB.) WHEREIN IT WAS HELD THAT NO PUCC A BILLS COULD POSSIBLY BE FURNISHED FOR EXPENSES SUCH AS CONVEYANCE, TEA-COFF EE, WATER AND OTHER EXPENSES IF THE DETAILS AS TO THE PERSONS WHO ARE I N RECEIPT OF THE AMOUNTS ARE SPECIFIED AND THE EXPENSES ARE INCURRED IN THE COURSE OF BUSINESS. 3.4. AFTER CAREFUL CONSIDERATION OF THE SUBMISSIONS OF THE APPELLANT WITH REGARD TO THE CONTENTIONS OF THE AO IN THE ASSESSMENT ORDER, IT IS SEEN THAT UNDOUBTEDLY MAKING CASH PAYMENTS MA Y BE UNAVOIDABLE AND IN THE NATURE OF BUSINESS EXPEDIENCY IN THE APPELLA NT'S LINE OF BUSINESS. THE APPELLANT HAS BEEN CONSISTENTLY MAKING PAYMENTS TOWARDS LABOUR CHARGES AT 40 TO 45% OF ITS TOTAL TURNOVER. THIS CL EARLY DEMONSTRATES THAT THE BUSINESS UNDERTAKEN BY THE APPELLANT IS A HIGHL Y LABOUR-INTENSIVE KIND OF WORK. THE ASSESSMENTS FOR A.Y. 2010-11 HAVE ALSO BEEN SCRUTINIZED AND ACCEPTED BY THE DEPARTMENT AND NO OBJECTIONS HAVE B EEN RAISED NOR ANY ADDITIONS MADE IN THE ASSESSMENT ORDER U/S 143(3) F OR THAT YEAR. THE AO HAS NOT POINTED OUT ANY INSTANCE OF BOGUS PAYMENT O R FORGED SIGNATURE ON THE MUSTER ROLL PRODUCED BEFORE HER. THE BOOKS OF A CCOUNTS HAVE BEEN AUDITED AND THE AUDITORS HAVE NOT DRAWN ANY ADVERSE INFERENCES TO THE FACT OF CASH PAYMENTS. THE ASSESSING OFFICER HAS PLACED RELIANCE ON THE ITA NO.1530/PN/2013 A.Y. : 2007-08 COMPARABLE CASE OF SHRI NAMDEO DHAMANE WHOSE GROSS PROFIT AND NET PROFIT MARGINS ARE CONSIDERABLY LOWER THAN THE APPE LLANT'S AT 9% AND 1.9% RESPECTIVELY. THE FINANCIALS ITSELF SHOW THAT THE T WO CASES ARE NOT, STRICTLY SPEAKING, COMPARABLE CASES. IT CAN THEREFORE, BE SU CCESSFULLY ARGUED, AS HAS BEEN DONE BY THE APPELLANT, THAT THE COMPARISON IS NOT A FAIR ONE. 3.5. TAKING THE ENTIRETY OF FACTS OF THE CASE INTO ACCOUNT, I AM OF THE VIEW THAT THE ACTION OF THE AO IN MAKING AN ADH OC DISALLOWANCE OF RS.25,00,000/- ON ACCOUNT OF BOGUS LABOUR CHARGES I S NOT IN ORDER AND THE SAME IS DIRECTED TO BE DELETED. AT THE SAME TIME, I T IS A MATTER OF RECORD THAT HUGE AMOUNTS OF CASH PAYMENTS HAVE BEEN MADE I N RESPECT OF LABOUR CHARGES AND THE ONUS IS ON THE APPELLANT TO PROVE T HAT THESE ARE INDEED GENUINE BUSINESS EXPENDITURE. ALTHOUGH THE APPELLAN T WAS ASKED TO PRODUCE SOME OF THE WORKERS ON SAMPLE BASIS, HE DID NOT DO SO, ON THE GROUND THAT THE LABOUR WAS MOSTLY HIRED PROJECT WIS E AND MOVED OUT ONCE THE SAME WAS COMPLETED. IT IS ALSO SEEN THAT THE AP PELLANT HAS SHOWN GROSS PROFIT DURING THE YEAR AT 14.82% COMPARED TO 18.56% IN THE IMMEDIATELY SUCCEEDING YEAR, I.E., A.Y. 2008-09 AND THE NET PROFIT HAS ALSO MARGINALLY INCREASED FROM 5.02% TO 5.39%. THE LABOU R CHARGES AS A PERCENTAGE OF THE TURNOVER WORKS OUT TO 41.23%, AS AGAINST 43.78% DURING THE IMPUGNED YEAR. A PERUSAL OF THE AUDITED ACCOUNT S FOR A.Y. 2009-10 ALSO SHOWS THAT THE APPELLANT HAS SHOWN GROSS PROFI T DURING THE YEAR AT 16.62% AND THE NET PROFIT HAS MARGINALLY DECREASED TO 5.14%. THE LABOUR CHARGES AS A PERCENTAGE OF THE TURNOVER WORKS OUT T O 33.59%. THERE SEEMS TO BE NO JUSTIFICATION FOR LOWER GP DURING TH E IMPUGNED ASSESSMENT YEAR, PARTICULARLY IN THE SCENARIO THAT THERE IS HI GHER TURNOVER (FOR A.Y. 2008-09) AND HIGHER G.P. IN THE SUBSEQUENT YEARS. I N VIEW OF THESE FACTORS AND ALSO CONSIDERING SOME DEFECTS IN THE BOOKS OF A CCOUNTS SUCH AS NON- MAINTENANCE OF STOCK REGISTER (THE SAME IS ADMITTED LY NOT MAINTAINED BY THE APPELLANT AS PER THE AUDITED ACCOUNTS AND AUDIT ORS REPORT), IT IS CONSIDERED TO BE FAIR AND REASONABLE TO ESTIMATE TH E GP AT 16% FOR THE YEAR, WHICH WORKS OUT TO RS.84,57,601/-. SINCE THE APPELLANT HAS ALREADY DISCLOSED GP OF RS.78,37,752/-, THE ADDITION THAT IS THUS SUSTAINED IS RS.6,19,849/- (RS.84,57,601/- MINUS RS.78,37,752/-) . GROUNDS NUMBERING 1 TO 6 ARE THUS PARTLY ALLOWED, SUBJECT T O THE ABOVE OBSERVATIONS. 6. BEFORE US, THE LEARNED DEPARTMENTAL REPRESENTATI VE HAS ASSAILED THE ORDER OF THE CIT(A) BY POINTING OUT THAT THE LABOUR CHARGES INCURRED BY THE ASSESSEE WERE DISPROPORTIONATELY HIGHER THAN A COMP ARABLE CASE NOTICED BY THE ASSESSING OFFICER. IT HAS ALSO BEEN SUBMITTED THAT THE EXPENDITURE TOWARDS LABOUR CHARGES HAS BEEN SUBSTANTIALLY INCUR RED IN CASH AND IT WAS BASED ON SELF MADE VOUCHERS. ACCORDING TO THE LEAR NED DEPARTMENTAL REPRESENTATIVE, UNDER THESE CIRCUMSTANCES THE CIT(A ) ERRED IN DELETING THE ADDITION MADE OUT OF LABOUR CHARGES. ITA NO.1530/PN/2013 A.Y. : 2007-08 7. WE HAVE CONSIDERED THE OBJECTIONS RAISED BY THE LEARNED DEPARTMENTAL REPRESENTATIVE AND HAVE ALSO CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW. NO DOUBT, THE EXPENSES ON ACCOUNT OF LABOUR CHARGES INCURRED BY THE ASSESSEE IS BY WAY OF SELF MADE VOUCHERS AND SUBSTA NTIALLY THE PAYMENTS HAVE BEEN MADE IN CASH BUT THE CIT(A) HAS NOTICED T HE REASONS FOR THE SAME. THE CIT(A) OBSERVES THAT ASSESSEE IS CARRYING ON A LABOUR INTENSIVE BUSINESS AND THE LABOUR IS HIRED ON MUSTER ROLLS AT SITES. THE LABOUR HIRED IS GENERALLY UNSKILLED AND SEMISKILLED WHO WORK ON DAILY WAGES R ATHER THAN ON PERMANENT BASIS. SINCE THE WORKERS ARE HIRED AT THE RESPECTI VE SITES AS PER THE REQUIREMENTS OF A PARTICULAR PROJECT, THEIR WAGES A RE PAID IN CASH AT THE SITE ITSELF. THE AFORESAID FACTORS, WHICH HAVE NOT BEEN DISPUTED BY THE REVENUE FORMED THE BASIS FOR THE CIT(A) TO HOLD THAT THE MA NNER OF INCURRING EXPENSES ON LABOUR CHARGES BY THE ASSESSEE IS IN TUNE WITH H ER NATURE OF BUSINESS. IT HAS ALSO BEEN NOTICED BY THE CIT(A) THAT ASSESSEE H AS BEEN CONSISTENTLY MAKING PAYMENT TOWARDS LABOUR CHARGES AT 40% TO 45% ON ITS TURNOVER AND IN A SUBSEQUENT ASSESSMENT YEAR 2010-11, IN A SCRUTINY ASSESSMENT THE EXPENDITURE INCURRED ON LABOUR CHARGES HAS BEEN ACC EPTED BY THE ASSESSING OFFICER. COUPLED WITH THIS FACT THE CIT(A) HAS FUR THER NOTICED THAT NO PARTICULAR OF INSTANCE OF BOGUS PAYMENT OR A FORGED SIGNATURE ON THE MUSTER ROLL HAS BEEN BROUGHT OUT BY THE ASSESSING OFFICER. EVEN TH E COMPARABLE CASE REFERRED BY THE ASSESSING OFFICER HAS BEEN FOUND TO BE INCOMPARABLE BY THE CIT(A) AS PER HER DISCUSSION IN PARA 3.4 OF THE IMP UGNED ORDER. ALL THE AFORESAID FINDINGS OF THE CIT(A) HAVE NOT BEEN NEGA TED BY THE REVENUE BEFORE US ON THE BASIS OF ANY COGENT MATERIAL OR EVIDENCE. THEREFORE, WE ARE UNABLE TO INTERFERE WITH THE CONCLUSION DRAWN BY THE CIT(A ). 8. APART THEREFROM, THE CIT(A) FOUND JUSTIFICATION IN THE STAND OF THE ASSESSING OFFICER THAT THE PROFIT MARGIN SHOWN BY T HE ASSESSEE DURING THE YEAR UNDER CONSIDERATION WAS LOW WHICH WAS UNACCEPT ABLE. THE CIT(A) ITA NO.1530/PN/2013 A.Y. : 2007-08 NOTICED THAT THERE WAS NO JUSTIFICATION FOR THE LOW ER GROSS PROFIT DURING THE YEAR UNDER CONSIDERATION. SHE CONSIDERED THE GROSS PROF IT RATE OF 18.56% IN THE IMMEDIATELY SUCCEEDING YEAR 2008-09 AND COMPARED IT WITH GROSS PROFIT RATE OF 14.28% DECLARED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION. IN THE ABSENCE OF ANY JUSTIFICATION FOR LOWER GROSS PR OFIT, THE CIT(A) DEEMED IT FIT TO ESTIMATE THE GROSS PROFIT @ 16% AS AGAINST 14.28 % DECLARED BY THE ASSESSEE. THUS, SHE RETAINED AN ADDITION OF RS.6,1 9,849/- ON THIS POINT. THE CIT(A) HAS JUSTIFIED SUSTENANCE OF AN ADDITION OF R S.6,19,849/- PRIMARILY FOR UNEXPLAINED LOWER GROSS PROFIT COUPLED WITH THE FAC T CASH PAYMENTS HAVE BEEN MADE IN RESPECT OF LABOUR CHARGES, WHICH WAS N OT FULLY VERIFIABLE. IN OUR CONSIDERED OPINION, HAVING REGARD TO THE TOTALITY O F FACTS AND CIRCUMSTANCES OF THE CASE, AS BROUGHT OUT BY THE CIT(A), HER APPROAC H OF DELETING ADDITION OF RS.25,00,000/- MADE BY THE ASSESSING OFFICER OUT OF LABOUR CHARGES AND RETAINING ADDITION TO THE EXTENT OF RS.6,19,849/- O N ACCOUNT OF UNEXPLAINED LOWER GROSS PROFIT IS FAIR AND PROPER. THUS, THE A FORESAID ACTION OF THE CIT(A) IS HEREBY AFFIRMED AND REVENUE FAILS IN ITS APPEAL. 9. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014. SD/- SD/- (SHAILENDRA KUMAR YADAV) (G . S. PANNU) JUDICIAL MEMBER ACCOUNT ANT MEMBER PUNE, DATED : 28 TH AUGUST, 2014. SUJEET COPY OF THE ORDER IS FORWARDED TO : - 1) THE ASSESSEE; 2) THE DEPARTMENT; 3) THE CIT(A)-I, PUNE; 4) THE CIT-I, PUNE; 5) THE DR B BENCH, I.T.A.T., PUNE; 6) GUARD FILE. BY ORDER //TRUE COPY// SR. PRIVATE SECRETARY I.T.A.T., PUNE